Likewise, few people blinked when Apple
AAPL, -1.54%
was reaching a 52-week high above $700 per share last year.

Now that the stock has dropped below $450—with some analysts saying it could be headed well below $400—people are complaining, wondering how their mutual-fund managers left them so exposed to a stock this volatile.

The answer is hardly surprising. The question investors face, however, is, “What do you want to do about it?”

The buildup was virtually inevitable as Apple climbed the ranks of the world’s largest companies. At its peak, the company by itself represented about 4% of the Standard & Poor’s 500. Apple accounted for more than 20% of the NASDAQ-100 before a rebalancing last spring brought the level down temporarily.

No one complained, because not only were they benefiting from the stock’s run, but return numbers for the S&P 500 and other indexes paled when presented with Apple’s benefits removed. Quarter after quarter, you could find graphs of the S&P’s earnings versus the previous year, and more than half of the growth for the 500 stocks was created just by the biggest one.

Now, however, the worm has turned. Apple is down roughly 40% since it peaked last fall, and it dropped more than 12% just on Thursday alone.

Suddenly, if your funds hold “too much” Apple, you have concerns that didn’t exist during the stock’s run-up.

And chances are that your funds do own Apple. According to researcher Lipper Inc., 22.5% of all equity funds regardless of type—domestic, international, sector—hold Apple shares. Of the 1,119 Apple holders as of their most recent portfolio reporting, Lipper says that 117—slightly more than one-in-10—have at least 10% of their total assets in Apple stock. Ouch.

Proof of the reversed fortunes: The S&P 500 is up about 5% year-to-date, but its results would be much better without Apple.

Fund investors looking to lay blame are pointing squarely at managers who let positions build up, even if they didn’t complain when too much Apple worked in their favor. While they have some alternatives to consider, the truth is that they might not like the choices all that much.

“You’d hope that someone managing a fund would address these issues of volatility — versus buying a passive issue where it is determined by the index—where they have the choice of letting a stock run or backing away from it,” said Geoff Bobroff, an industry consultant in East Greenwich, R.I. “But when investors themselves can make a choice to do something that reduces the impact of any one stock by going with an equal-weighted or volatility-weighted index, they don’t like those results either all the time.”

Indeed, with Apple struggling, expect to hear a lot about equal-weighted indexes—where each stock is held in equal measure and the portfolio is regularly rebalanced to guard against the run-ups or drop-offs — or benchmarks that are volatility-weighted, where each holding is held in an amount that based on risk rather than market capitalization.

To see how that stacks up, consider that the two biggest S&P 500 stocks — Apple and Exxon Mobil
XOM, -0.74%
— make up close to 8% of the portfolio. whereas the top two holdings for the new Compass EMP U.S. 500 Enhanced Volatility Weighted fund
CUHAX, +1.13%
are Johnson & Johnson and Southern Co.
SO, -0.11%
, which make up less than 1% of the portfolio combined.

Quit whining, Apple investors

(3:04)

No one blinked when Apple shares headed towards $700 but now that the stock has dropped below $450-with some analysts saying it could be headed well below $400-people are complaining. Chuck Jaffe joins digits. Photo: Getty Images.

The issue is that index constructions aren’t really about making calls on the market — they’re entire investment strategies. A low-volatility fund, for example, is based on the idea that low-volatility issues can deliver superior results over time. It’s about capitalizing on an anomaly created when all of the action is going into highfliers like Apple.

But a low-volatility fund investor or an equal-weight indexer would have found their returns lagging last year, while Apple was still going gangbusters. Today, they’d be feeling vindicated.

“Switching between low- and high-volatility strategies is just a grotesquely inefficient form of market-timing,” said Morningstar analyst Samuel Lee, who follows low-volatility strategies. “The only persuasive reason to own low-volatility strategies is because you believe the ‘low-volatility anomaly’ will persist.”

Added Bobroff: “Ultimately, this is one of those cases where if you didn’t complain when your funds were rising because of Apple, you have no one to blame but yourself, because you could have seen this coming.”

“If this recent drop-off has some investors worried, then maybe they should look at overlap and portfolio concentration,” Bobroff added, “but long-term they still have big gains to show, and they would not have wanted to miss out on Apple’s run-up, so maybe it shows them that sometimes you have to take the bad with the good to get the best long-term results.”

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